NSW Land Tax, daylight robbery

Discussion in 'Accounting & Tax' started by Eric Wu, 3rd Feb, 2016.

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  1. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Land tax has been a feature of NSW property ownership (and not rent income) since 1954. States could impose a state levy on rents but it would be unfair on renters v's owners. So they assess it on wealth. Buyers beware.

    There is a social argument that land tax makes land use fair for the community as it acts to ensure all land is productive in use (or the owner cant afford the tax). The very nature of land tax assumes land income is productive ie rents are received and this is used to pay tax but that isn't always the case. Land tax where there is a loan and no productive use is both wasteful and non-commercial. Land tax stops wealthy land hoarders in some ways too by being progressive. The premium rate also takes it further.

    CGT is also a Commonwealth wealth tax and fortunately it is deferred until sale.

    Stamp Duty up front must then seem uber unfair. But it does act to impose a transaction charge to limit spec flipping activities which has fair outcomes.
     
  2. Kangaroo

    Kangaroo Well-Known Member

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    Threshold is way over. No threshold for her. POST CGT.
     
  3. Scott No Mates

    Scott No Mates Well-Known Member

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    OK I agree that it is post 1987 so subject to cgt.

    Why does she not have the threshold? Structuring

    When not subject to the threshhold landtax would be $27.3k
     
  4. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    The willingness of the market to drive rental yield down to 2% in the above example is more the concern. 2% before outgoings is ludicrous. Its less than a basic capital secure deposit rate and doesn't explain risk. One of reasons why some are seeking dual income IPs to enhance yield. So economic assumption is that buyers consider the expected future yield a fair return for the growth otherwise owners would sell.

    Do you sell ? I would argue the potential tax on $950K of CGT profit might far outweigh the land tax issue which is being funded by rents for now and its deductible.
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I have argued on here before that property is good to get leverage safely, but one it grows and the LVR is low or the loan is paid off it can be better to sell and place the proceeds in a higher yielding index fund which also has the benefits of franking credits.

    One of my clients talked me into this. She has 5 or 6 Sydney properties, all pre-cgt and worth millions. But the yields are low, maintenance high, land tax high and the boom has happened so she is gradually selling the lot and putting into a mixture of vanguard funds (I didn't advise on this, but she came up with the idea herself. At first I was shocked, but now I can see the logic. She is a bogglehead now.
     
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  6. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Or use a structure that benefits the family and allows that entity to revise the costbase, reborrow perhaps to buy other property etc. Sometimes these entities can even have family , and SMSF involvement (without borrowings) etc. So many options and a distinct financial decision pre-retirement etc is important that includes financial, tax and legal consequences. Yes there are costs involved but often emotional attachment to "mum and dads properties" can even lead to a dev or more. We have seen several older clients take that approach in the past year.

    With one, her $2m dev profit is funding her aged care plans. And she started with questions about aged pensions.

    Terry - Yes many older self funded persons seek simplicity and a decent income stream. Ideally acting before they are 65 when opportunities to save tax reduce. And those that dont hopefully have a solid estate plan.
     
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  7. EyesClosed

    EyesClosed Member

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    Hi, am a complete Newbie to the Forum so apologies if posting incorrectly ... but thought this question I have to be related to this thread but also a tad unrelated I admit.

    Have found the info that's being shared on this Forum of huge value so thanks to all for sharing their knowledge, time and effort.

    My situation - I hold a property (land and old house) in Syd for a number a years now - currently rented out. Have never been assessed for NSW land tax. To be honest I thought OSR would send me an assessment / notice if I was due to pay any but am now not so sure?? How does one check what the land value of the property is (or what it roughly is in an area?) or does the OSR send out an assessment once your property goes above the threshold (which is what I thought)?!?

    thanks for the help in advance.
     
  8. Santaslayer

    Santaslayer Well-Known Member

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    From memory, my accountant said that the onus is on the landlord to register for land tax. You must register if you think you are nearly or already above the threshold. This can be done online. Just google the OSR website.
     
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  9. Scott No Mates

    Scott No Mates Well-Known Member

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    • The OSR write to the owner each year with the last 3 years land values
    • The figure also appears on your council rates to determine how much you pay in rates
    • Also check globe.six.nsw.gov.au & follow the directions to download the add-in for google earth. Then search your land
    • Register on on OSR website
     
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  10. Chilliblue

    Chilliblue Well-Known Member

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    Yes the onus is on the owner and a good practice is to register all properties as you purchase them.
     
  11. Santaslayer

    Santaslayer Well-Known Member

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    This is sooo coool
     
  12. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Paying tax isn't cool even if they use fancy tech.
     
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  13. EyesClosed

    EyesClosed Member

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    Thanks all and @Scott No Mates the tip re council tax notice most helpful. I dug out the latest council tax notice and the "Rateable Value" on the notice must be the land tax value. Under the threshold for now thank goodness. But have never received any letter from OSR so I best register just in case - why they don't register us when you buy the property and pay the stamp duty ...

    A couple of more questions if I may.

    Once you're over the threshold, the 1.6% land tax, is that paid on the entire land value or just on the portion in excess of the threshold?

    Also, if one buys a flat as IP, is there land value assigned to a flat as well? Or just Torrens title properties?
     
  14. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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  15. mini2

    mini2 Well-Known Member

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    NSW isn't the ripoff merchant, try ACT. I will be paying $4k for a $371k block. Meanwhile my $1mil block in NSW is 'only' $6k.
     
  16. EyesClosed

    EyesClosed Member

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    thanks @Terry_w ... hmmm land tax the hidden tax indeed
     
  17. kierank

    kierank Well-Known Member

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    In Qld, the OSR advises you when it is due (I believe they update their register when you buy property). Unfortunately, it can hurt cashflow when they get it wrong.

    This year, I found out their records were wrong. One is obliged to tell them when one finds out (which I did). They then did their Land Tax calculations for this year and they can go back 5 years.

    $33,000 later ...
     
  18. wylie

    wylie Moderator Staff Member

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    Ouch!!!

    How did they get it wrong (if you are happy to share)?
     
  19. sash

    sash Well-Known Member

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    SR that is unusual...U would object.

    LT is calculated an average over 3 years. So if it jumped to 383k in 206...you average rate should be 283k.

     
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  20. Yson

    Yson Well-Known Member

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    But how can we min land tax ( if u are single )
    Other than buying inter state ??